The strange power of prizes

Tartan Racing, a collaboration between students at Carnegie Mellon and General Motors, won a $2 million prize in the 2007 DARPA Grand Challenge, a competition to develop an autonomous ground vehicle for the military.

And, of course, kids since 1912 have been tearing open Cracker Jack boxes to get at the prize inside.

Prizes are fun. The difference between a spelling test and a spelling bee is a prize.

These days, as never before, private companies, foundations and government are turning to prizes as a way to spur technological and environmental innovation. This proliferation of prizes tells us some interesting things about ourselves and about the limits markets, as I’ll argue in a moment.

The U.S. Department of Energy has an L-Prize for high performance lighting and an H-Prize to “advance the research, development, demonstration, and commercial application of hydrogen energy technologies.”

On a more modest scale, the World Wildlife Fund runs the annual International Smart Gear Competition to reward practical, innovative fishing gear designs that reduce bycatch – the accidental catch of sea turtles, birds, marine mammals and other species.

“Prizes are becoming an industry, in many ways,” says Hillary Chen, a policy analyst with the White House Office and Technology Policy. The White House, she says, is looking at prizes to help solve a variety of problems, ranging from childhood obesity to high school graduation rates.

“There’s a lot of enthusiasm for prizes inside the administration,” she said.

Chen spoke today at Resources for the Future, the environmental think tank, which organized a panel on the role of prizes in innovation and entrepreneurship.

Why the plethora of prizes? Hard to say. If you believe everything you learned in Econ 101 and listen to free market acolytes, a functioning market economy should be able to deliver the things we need: autonomous ground vehicles to the military, efficient lighting systems or breakthroughs in genomics.

That’s why we have patents, which reward invention, and profits, which flow, at least in theory, to people who devise useful products and services.

To inspire a new generation of viable, super-efficient vehicles that help break our addiction to oil and stem the effects of climate change.

Hmm. As Timothy Brennan of RFF, who moderated the panel, noted: Wouldn’t you think this is what the best brains at GM, Ford, Honda and Toyota do every day?

Perhaps not.

Prizes can play a role when entrenched industries are either holding back innovation–because their business model depends on selling the stuff they already make–or are stuck in their ways.

Prizes also tap into our emotions in a way the monetary rewards do not. Michele Gittleman, a project manager at Carnegie Mellon, said the idea of researching a self-directed vehicle that navigate a desert obstacle course was not all that exciting to her until a prize was attached to it by DARPA.

“I’m fairly competitive,” Gittleman said. “That had a lot of appeal.”

Prizes can be designed to promote long-term goals that markets can’t. As this video explains, Google’s Lunar X Prize is designed to promote a “revolution in space to benefit all humanity,” perhaps by enabling private companies to mine the silicon in the lunar soil to provide “clean, affordable, limitless energy” for solar satellites.

Prizes also drive collaboration in ways that markets don’t. A $1 million Netflix prize, designed to improve the accuracy of predictions about how much someone is going to enjoy a movie based on their movie preferences, was won by a team of engineers who work for, among others, Yahoo and AT&T. The winning team members worked in Israel, Montreal, Austria and New Jersey, according to Slate.

Deadlines are also a key feature of prizes. A research project inside a company or the government can always be delayed by scientists, pleading that they need more time. But a prize has an endpoint.

Ned Stetson of DOE told me that the agency expects to award first stage of the H-Prize in 2011. “If we make it, we will have accelerated the pace of research,” he said. The prize, he said, will also attract “a much larger pool of groups and organizations” than those that customarily seek government grants.

What’s more, prizes add pizzazz and drama to scientific research, which can otherwise be a bit dull.

There’s a danger here, of course. Prize fatigue could ensue. Government lawyers are already said to be studying what can be done with prizes and what can’t. Lawyers– especially government lawyers–just might squeeze some of the fun out of prizes.

But I don’t think they will. Just before he died, the comedian George Carlin won the Mark Twain Prize for American Humor. Carlin, a masterful student of language, was pleased, or so the story goes.

Awards are for adults, he said. Prizes are for kids.

The strange power of prizes just may be that they make us feel like kids again.

Prizes ARE fun, — I still buy Cracker Jacks every time I go to a Red Sox game so I can look for the prize. And the proliferation and compelling nature of prizes underscores your point that, despite what we learned in Econ 101, we don’t alway act as rational economic beings.

It certainly true for me. For example, I know I’m paying too much for internet service at home, but it’s just a drag to make a change. And in my work at EDF, I see the same thing happening all the time in our dealings with corporate partners. There are so many environmental innovations that carry economic benefits, but they often don’t get acted on. Could be that companies don’t know about them, could be that it’s not in anybody’s job description, but it also could be that there’s an element of FUN missing. So if it takes a prize to get us to do better, I’m all for it!

Prizes and rewards may be “fun” but they’re also the surest way to discourage the sustainable behavior change that is needed as individuals and within companies. I’d say the best way to isolate and handcuff sustainable innovation is to treat it as a contest or competition and to basically bribe people and companies to change. To your points:

Tapping into emotions: emotions are by nature internal, prizes/rewards are external. Many studies have shown that external motivators actually end up reducing intrinsic motivation, meaning people become less interested in what they’re doing when they begin to focus on the reward and not their actions, jobs, decisions, etc.

Collaboration: prizes and rewards may create a one-time collaboration but more often then not, they create an atmosphere of competition that discourages teamwork, partnering and sharing. Why would fellow employees work together when they are governed by a system of incentives that rewards individual performance?

Deadlines: A prize deadline may make project planning or budgeting cleaner, but it will also discourage continuous improvement, risk-taking, creativity and long-term thinking, all key elements of innovation. What happens when the competition is over and there are no more prizes to give out? Is there still an incentive to innovate? Likely not as the motivation equation has been irreparably harmed.

The strange “power” of incentives is their ability to isolate, promote self-interest and create false motivation. Not terribly useful, unless we’re all happy with a world with engineers from ATT and Yahoo spending their time trying to predict how much I’ll watch a movie of course.

Fact: American green energy innovation and ingenuity, science really, hasn’t been funded since 2001.http://www.eere.energy.gov/inventions
New renewable energy inventors have no stimulus grant money to develop their inventions. The Department of Energy and the National Renewable Energy Laboratory and in particular, Dr. Chu, has snuffed any new green energy advancements. Their agenda is to do research and development of product line for the multinational corporations and keep American innovation down.
Old patented green energy inventions were bought up by the multinational corporations and kept off of the market so that they would not upset their New World Order agenda. The last World conquer was Hitler.
Yes, it’s a win- win for Communist China and the multinational corporations and a loss- loss for Democracy and Freedom and the American people. Remember, the American manufacturing base moved to China for cheap labor; (graduate engineer $7,000 a year and most everyone else $700 a year) their allegiance is now with Communist China.
Bush played the bad cop, Obama plays the good cop, but the fact is we are still on the same agenda. There is no change, the free press is gone. The treason of the multinational corporations and their owned and controlled congress continues. There will be no rebuilding of America’s manufacturing capabilities from the ground up with new inventions. There will only be more debt for the American people and dominance of our government by the multinational corporations New World Order agenda.
Ask your government representatives WHY there is no funding for new inventions (advancement in science) to build a new American economy.

[…] have been used an incentive to solve scientific problems for centuries [See my 2009 blogpost, The Strange Power of Prizes]. More recently, companies including Kraft Foods (“Do you have a new product or packaging […]

[…] have been used an incentive to solve scientific problems for centuries [See my 2009 blog post, The Strange Power of Prizes]. More recently, companies including Kraft Foods (“Do you have a new product or packaging […]

[…] have been used an inducement to solve systematic problems for centuries [See my 2009 blog post, The Strange Power of Prizes]. More recently, companies including Kraft Foods (“Do we have a new product or wrapping […]

[…] one seem to be able to spur change that market forces by themselves cannot. [See my 2009 blogpost, The strange power of prizes] Evidently, the creation of a prize—not just the money, but the visibility it brings and […]

[…] have been used an inducement to solve systematic problems for centuries [See my 2009 blog post, The Strange Power of Prizes]. More recently, companies including Kraft Foods (“Do we have a new product or wrapping […]